Tuesday, 17 November 2009

asos.com financials: 47% increase in sales for 6 months to september 2009

in times of highly publicised economic uncertainties, one of my favourite online retailers asos.com went against the odds to post very respectable results. for the year ended 31st march 2009, when the banking industry was in shambles and the world trying to pick up the pieces, asos announced a 104% increase in sales.

yesterday, they provided a trading update for the 6 months to 30th september, and they reported a 47% increase in sales as compared to the first 6 months of 2008.

just how did they do it?

tighter cost controls was cited as one of the reasons. we see from above, that every cost category has gone up, but the expenditure brought increase in sales at a higher pace than increase in expenses. total costs as a percentage of sales was 37% as compared to 40% in 2008.

payroll costs gone up by 33%. at a time when most companies are going through restructuring and laying off staff, they hired more people this year, bringing total headcount from 441 in 2008 to 520 as at october. highly commendable.

the global economic downturn indirectly contributed to the increase in sales at asos. consumers do not just stop spending, but they cut back and change the way they shop. asos benefited from "trading down". shoppers who used to shop at high end shops now "trade down" a notch and buy from alternative sources who can provide fast fashion at lower prices. people stay home more during recession, hence the widely reported statistics of increased online spend.

asos maintains it's warehouse at hemel hempstead, a popular low cost industrial town, thereby driving costs down too. they invested about £5mil year to date on IT/warehousing, and they have plans to invest another £6m by march next year. very encouraging sign at a time when most companies are freezing such spending.

another reason they cited for the better than expected results, was the change in product mix. they now carry more than 34,000 product lines. if you think asos only carries their own in-house labels, think again:

their product mix has increased tremendously. bit of asos trivial for you:- they now have 1.2million active customers (those who have shopped at least once in 6mths)- each customer spends about £62 per order- there are on average 2.8 items in every basket

does that sound like you? in my previous order, i spent about £80 and bought 3 items.

customers also return on average 25% of their items. i thought the returns rate is very high, but for an online store with no store fronts, that could be acceptable. they now offer free return of items for all uk customers. is free returns a good incentive to shop? my friend km loves to shop at net-a-porter, and often orders 2 sizes of each item, so she can try them on in the comfort of her own home. she then returns the unsuitable sizes. free returns allows the consumer a risk free approach, and encourages them to place more items into the basket.

with their recently released results, they announced that 25% of total sales now comes from outside of uk. it is very wise to diversify and take advantage of existing infrastructure. the strong foreign currencies, particularly euros, definitely helped to boost their sales when translated back into GBP for reporting.

their top 5 overseas countries of sales were from denmark, ireland, france, germany and the US. all these regions were hard hit by the recession. but i think it has to do with the mentality of shoppers: in europe where it's harder hit, consumers trade down, asos therefore benefits. in asia where crisis is less pronounced, asos has a smaller market share as asian consumers are into big brandings. hence we see positive sales increase from louis vuitton and hermes, propped up by asia. the product mix, mindset of european consumers and increase in popularity of online shopping all pushed the sail further.

part of their increased expenditure this year was to increase user interface, to make online shopping more enjoyable. this included same day delivery, even for weekends for those in london, and cheap/express shipping to those overseas. my recent order took 2 days to arrive, that is efficiency. online shopping is about instant gratuity, and they delivered.

how did their previous results stack up? they were set up back in 2000, and results for the past 5 years have increased leaps and bounds. profit doubled year on year, which is an amazing feat.

have their financial results been reflected in the share price?

the above is their share price chart for the past one year.

now compare that against the index of the 100 biggest companies in the uk (red line). they outperformed the ftse100 index almost consistently.

asos used to be really boring and stuffy for me, but they changed their business models swiftly to adapt to the change in retail climate, and totally capitalise not just on the latest trends, but also on the increase in popularity of online shopping. their share price is trading at about £4.20 now. so in future when we are thinking of adding that cheap bracelet into the basket, why not buy a share in asos. i think the company has massive potential. they are not paying a dividend this year to conserve cash and reinvest into the business. asia is still a largely untapped market for them, with the right product mix they could proof to be very successful globally.

your financial posts are astounding.ive only order from asos once i think 2 yrs ago. and i was pretty happy with the purchase. though since it is outside of my country, it has to really be something that i wouldnt be able to find somewhere else.